Prices move before fundamentals. It is a warning flag if the market is not responding to data correctly. This is one of the cardinal rules I write about in the Investment Survival Guide. I don’t know what happened to the market Tuesday that caused a 265 point plunge on the Dow. Not that I usually do know or anything presumptuous like that. Oh sure there are no shortage of pundits offering theories to explain the daily machinations but only the most naive of investors believe they know what they are talking about. But after seven down days, six hundred points or so and a budget deal, and this is how the market acts? Something is wrong. It’s a warning flag. And the best thing to do is pare down positions.
Often times a downtrend or uptrend is punctuated with a climax of buying or selling. For this to happen though you need to have a day of tremendous volume, usually several times the daily average. Nothing of the sort happened here Tuesday. It dosen’t mean we can’t have a sharp over sold bounce back rally at any moment but one with legs needs capitulation.